Student-Loan Default Rates Continue Steady Climb

Career College Central summary:

  • The percentage of borrowers who defaulted on their federal student loans within two years of starting repayment has increased for the sixth year in a row, while the rate for defaults measured over a three-year period rose by a similar amount, according to figures released this week by the U.S. Department of Education.
  • The latest two-year default rate, which applies to borrowers who began repaying loans from October 1, 2010, to September 30, 2011, was 10 percent—the highest rate in nearly two decades. It was up from 9.1 percent among the previous year's cohort.
  • The Department of Education is in the process of changing its standard for measuring loan-default rates, from a two-year span to a three-year span. The latest three-year rate, which applies to borrowers who began repayment during the 2010 fiscal year, was 14.7 percent, up from 13.4 percent among the previous year's cohort, the first to be measured over three years.
  • Default rates, which are released annually, are used by the Department of Education to determine whether colleges are eligible to receive federal student aid. Institutions with default rates of 25 percent or higher for three consecutive years, or 40 percent or higher in any single year, cannot receive federal student aid.

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